Expansion of the Italian natural gas network to the Sardinia Island: Economic assessment

Abstract

About fifteen years ago, the GALSI pipeline was projected to connect Algeria and Italy by crossing the Mediterranean Sea. This has suggested the opportunity to provide natural gas to households and firms of the Sardinia Island, since a gas supply network was lacking in the region. Currently, although the GALSI pipeline is no more on the agenda, investments to equip many Sardinian municipalities with local gas networks are still carried on. The analysis we perform is twofold. Firstly, we estimate the likely natural gas consumption in 89 municipalities of the island. Subsequently, we focus on the economic viability of the local gas networks both from the public and the private point of view. The former perspective considers the public funds as outflows and the taxes levied on gas consumptions as inflows. The latter perspective aims to measure the yield rate for the private investors. Here we show that the projects are worth to be subsidized, although not all of them are palatable for the private partners. However, the most problematic finding concerns the allocation of the public funds, which has been found to be inconsistent with the underlying demographic and socio-economic conditions that drive natural gas consumptions. The irrational distribution of the grants causes that some local networks are over-subsidized and highly profitable for the private partners, while others are under-subsidized and characterized by a poor economic attractiveness for the investors. Moreover, the overall amount of grants is by far higher than the amount that would suffice.